Liberalisation and Financial Crises in the Postwar OECD

This paper investigates the causes of crises over the post war period in 14 OECD economies. We look first at the definition of crises and survey the literature on the links between credit growth and crises over the last 100 years or so. We then examine the determinants of financial crises in market economies, stressing the roles of bank capital, banking structure, property prices and current account deficits in the post Bretton Woods era. We look at the role of credit growth in crisis determination and note that it is present in the post Bretton Woods era. We argue that increases in capital ratios would systematically reduce the risk of crisis incidence in market economies over the next few years. We test for the interaction between capital and bank cash in the determination of crises, and the causality between house price growth and credit growth. A longer‐term analysis of the post‐war period is undertaken, and our core results on the importance of bank capital reserves are upheld.